The following is a staff writer post from MikeS. He is a married father of 2. So, with the cat, he ranks number 5 in the house. He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.
Whenever I have budget surprises, they normally aren’t the happy kind. They usually mean something has been more expensive than I anticipated or there was an unexpected expense. This time is different however. There is going to be a surprise source of income.
My wife will start bringing in an income starting in September. She will be providing childcare for someone 5 days a week. She will be earning between $1,000 and $1,400 dollars a month depending upon the number of days she watches the baby. Since I don’t count on her for any income, this certainly will be bonus income.
What to do?
The easy answer to this question would be to save it all. Though it would not be easy to convince my wife this is the best course of action. So, I need to balance saving some of the extra income with the need to enjoy some if it too. What I did was to think of the income in two different buckets, a monthly cash flow bucket and a bonus bucket.
Monthly Cash Flow
In terms of the monthly cash flow, my first thought was to give both my wife and I a raise in our monthly allowances. A $50 bump for each of us felt like a reasonable number.
One of the next items on the list is to increase my 401k contribution by 1%. Since I never seem to be able to do this when I receive my annual raise, this is a great time to do it.
Next, I am going to add an additional $100 a month to the mortgage payment to pay that down even faster. I view this as a kind of forced savings as well and one that would be awfully hard to withdraw. It is a long-term benefit, which I won’t see for 20 years, but it sure will be nice when I’m mortgage free.
The next item will be to create a padding account in savings. Since the childcare will only be done during the school year, that leaves about a 2-month period with no income. I don’t want to have to readjust my budget for those 2 months. So, I’ll reserve enough to cover the increased mortgage payment, 401k increase and allowance increases for those 2 months.
Whatever is left after the monthly cash flow withdrawals I will treat it like I would my normal performances bonuses and spread it out in my various savings categories.
My first thought was to pad my emergency fund a bit more. I have about $5,000 in straight cash right now. Don’t worry that’s not the extent of my emergency fund, just the cash portion. I would like to get that up to about $8,000.
Next up was topping off the Disney vacation fund as it looks like we are heading there next year. I only need another $2,400 to have that at $10,000. If it turns out I don’t need that much for the trip, I will probably just use whatever is left for any other trips we take.
The general trip category will receive a little under $2,000. This is about what I put there with my bonus earlier this year. This will fund any trips we want to take in 2017.
Next up are the house and capital improvement funds, both would get a $1,000. Last on the list is the YMCA membership. We set aside money in savings every year to fund the monthly dues. I’ll do this ahead of time instead of waiting for the bonus next year.
Bonus as a Bonus
I was able to sell my wife on this approach by saying that should I be fortunate again next year and receive a performance bonus; we would be able to use it for whatever we want. My wife and I have been discussing what to do with our deck on the back of the house. She would like to turn it into a screened-in porch. I am ok with that, but was guessing the cost to do so would be in the $5,000 to $10,000 range. By using the extra money as a bonus, we can use the bonus to fund bigger projects, like a screened-in porch.
Any income surprises for you recently?